The Arbitration and Conciliation (Amendment) Act, 2019 of India: Improvement or Quagmire ?

 Before

After

Effects

 

Proviso to Section 2(2)

 

(2) This Part shall apply where the place of arbitration is in India.

Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (a) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.

(2) This Part shall apply where the place of arbitration is in India.

Provided that subject to an agreement to the contrary, the provisions of sections 9, 27 and clause (b) of sub-section (1) and sub-section (3) of section 37 shall also apply to international commercial arbitration, even if the place of arbitration is outside India, and an arbitral award made or to be made in such place is enforceable and recognised under the provisions of Part II of this Act.

Before the amendment, under the erstwhile proviso to Section 2(2), parties to an international commercial arbitration seated outside India, had the option to make an order of an Indian Court refusing to refer the parties to arbitration under Section 8 of the Arbitration & Conciliation Act, 1996 (‘Act’) appealable. Now due to amendment, this option no longer exists with such parties.

However, by virtue of the amendment proviso of Section 2(2), the parties to an international commercial arbitration can now agree to make an order of an Indian Court granting or refusing to grant any interim measure under Section 9 of the Act appealable.

 

On the footsteps of the 2017 Srikrishna Committee recommended by the Arbitration and Conciliation (Amendment) Act, 2019 (‘2019 Amendment Act’), ‘clause (a)’ in proviso to Section 2(2) is replaced by ‘clause (b)’ since in a foreign seated international commercial arbitration it is illogical to make appealable an order of an Indian court refusing to refer the parties to arbitration under Section 8  read with Section 37(1)(a) of the Act which pertains to domestic arbitrations in India.

Due to this error, in the time interval between the Arbitration and Conciliation (Amendment) Act, 2015 (‘2015 Amendment Act’) and 2019 Amendment Act were brought into force, an order of an Indian Court granting or refusing to grant any interim measure under Section 9 of the Act was not appealable based on a plain reading of the provisions.

 

 

Section 11 – Appointment of arbitrators

 

(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.

Section 11(6A) omitted

Due to the expression “confine to the examination of the existence of an arbitration agreement” in Section 11(6A) of the Act, the statutory mandate was to only consider the existence of an arbitration agreement while deciding the application to appoint arbitrator(s). The result was that even if parties have agreed to arbitrate a non-arbitrable dispute in their arbitration agreement, the same could be referred to arbitration as long as it complies with the essentials of existence of arbitration agreement. Although, Courts did travel beyond the existence despite insertion of Section 11(6A), the statutory mandate was very clear somewhere also, to give effect to party autonomy.

As a sequitur of this amendment, the examination of application for the appointment of arbitrator(s) is no longer only confined to the existence of arbitration agreement.

(7) A decision on a matter entrusted by sub-section (4) or sub-section (5) or sub-section (6) to the Supreme Court or, as the case may be, the High Court or the person or institution designated by such Court is final and no appeal including Letters Patent Appeal shall lie against such decision.

Omitted

The erstwhile Section 11(7) of the Act had put an embargo on appealing the decision of appointment of arbitrator(s) by Court or institution. This amendment may not make any difference on this aspect reason being Section 37 and Section 50 of the Act provides an exclusive and exhaustive list of orders made by Court or tribunal which are appealable. However, neither of these sections makes order of appointment of arbitrator(s) passed by the Court or institution appealable.

Section 37 of the Act provides for limited appeals against orders made by the arbitral tribunal or by the court in arbitrations seated in India. Similarly, section 50 provides for limited appeals against orders made by a court in foreign-seated arbitrations. Both sections provide for a right of appeal against certain orders only and no others. It is pertinent to mention that none of these sections make an order of appointment of arbitrator(s) by the Court appealable. Therefore, in effect, nothing has been changed by this omission since such orders are any non-appeable under Section 37 or 50.

(13) An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the Supreme Court or the High Court or the person or institution designated by such Court, as the case may be, as expeditiously as possible and an endeavour shall be made to dispose of the matter within a period of sixty days from the date of service of notice on the opposite party.

 

(13) An application made under this section for appointment of an arbitrator or arbitrators shall be disposed of by the arbitral institution within a period of thirty days from the date of service of notice on the opposite party.

The term used in the unamended sub-clause 13 was ‘as expeditiously as possible’. However, the amendment has provided a timeline of 30 days for the court to decide the application for appointment of arbitrator(s).

It will facilitate speedy disposal of application for appointment of arbitrator(s). Although, it is yet to be tested in actual practice.

(14) For the purpose of determination of the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal, the High Court may frame such rules as may be necessary, after taking into consideration the rates specified in the Fourth Schedule.

(14) The arbitral institution shall determine the fees of the arbitral tribunal and the manner of its payment to the arbitral tribunal subject to the rates specified in the Fourth Schedule.

 

Explanation.– For the removal of doubts, it is hereby clarified that this sub-section shall not apply to international commercial arbitration and in arbitrations (other than international commercial arbitration) where parties have agreed for determination of fees as per the rules of an arbitral institution.

The words used in this sub-clause before amendment were “after taking into consideration the rates specified in the Fourth Schedule” whereas after amendment this has been replaced by “subject to the rates specified in the Fourth Schedule

There were some conflicting judgements from various High Courts in India on the issue that whether Fourth schedule is mandatory or directory.

This debate has now been put to rest by express wordings of ‘subject to’ substituted by 2019 Amendment Act in sub-clause 14 of Section 11 of the Act. It could be averred that the rates should be within the confines of the Fourth Schedule.

 

Section 17 – Interim measures ordered by arbitral tribunal

 

(1) A party may, during the arbitral proceedings or at any time after the making of the arbitral award but before it is enforced in accordance with section 36, apply to the arbitral tribunal

(1) A party may, during the arbitral proceedings, apply to the arbitral tribunal–

This amendment is inline with the express wordings of Section 32 of the Act which inter alia provides that the arbitral proceedings shall be terminated by the final arbitral award making the arbitrator(s) functus officio whereas the erstwhile Section 17(1) of the Act which inter alia states that a party may apply to arbitral tribunal seeking interim measures at any time after the making of the award but before it is enforced.

Therefore, as apparent, the option provided to the parties in the unamended Section 17(1) to apply for interim measures ‘at any time after the making of the arbitral award’ was in conflict with the express wordings of Section 32(1) of the Act.

Thus, in view of this amendment, once the arbitral tribunal becomes functus officio, after the final arbitral award is rendered, no application can be made for grant of interim measures under Section 17(1) of the Act. This amendment also highlights the importance of Section 9 (Interim Measures by the Court) since as a result of this amendment, the parties intending to seek interim measures at any time after the making of the arbitral award will have to knock the doors of the Court.

 

Section 23(4) – Statement of claim and defence

 

Not Present

(4) The statement of claim and defence under this section shall be completed within a period of six months from the date the arbitrator or all the arbitrators, as the case may be, received notice, in writing, of their appointment.

In an arbitration not including complex calculations and lengthy pleadings, generally, parties may not take 6 months to complete their pleadings and therefore, this mandatory deadline provided by the amendment could have been avoided.

This has further repercussions on the overall timeline of the arbitration as the end of this month period marks as a reference period for computing twelve months of deadline stipulated under amended Section 29A (discussed below) for the completion of arbitration proceedings.

Hence, by inserting this section, the legislation, in a way, has provided an added leverage of 6 months to the parties making total period of completion of arbitration as 24 months (6 + 12 months) + 6 month (extendable by consent as per Section 29A(3) of the Act).

 

Section 29A(1) – Time limit for arbitral award

 

“(1) The award shall be made within a period of twelve months from the date the arbitral tribunal enters upon the reference.

 

Explanation.– For the purpose of this sub-section, an arbitral tribunal shall be deemed to have entered upon the reference on the date on which the arbitrator or all the arbitrators, as the case may be, have received notice, in writing, of their appointment.”

(1) The award in matters other than international commercial arbitration shall be made by the arbitral tribunal within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23:

 

Provided that the award in the matter of international commercial arbitration may be made as expeditiously as possible and endeavour may be made to dispose of the matter within a period of twelve months from the date of completion of pleadings under sub-section (4) of section 23.

As apparent, the unamended Section 29A(1) was a blanket section which was applicable to both international and domestic arbitrations.

The 2019 Amendment Act has bifurcated the applicable timelines in two categories i.e. international and domestic arbitrations.

It appears that in former case, the word ‘may’ does not make it obligatory on the Arbitrator(s) to meet the deadline of 12 months for rendering the award.

However, in latter case, the deadline appears to be sacrosanct due to the word ‘shall’.

The amended provision also provides that the time limit for completion of arbitral proceedings shall be computed taking date of completion of pleadings by the parties as the reference point as provided in newly inserted Section 23(4).

Instead of serving the purpose of speedy redressal this amendment might go against the ethos of the 2015 Amendment Act of bringing rigid timelines for completion of arbitration proceedings.

Let me explain this by way of algebra.

The point of reference for computation of 12 months in unamended Act was the date on which the arbitrator or all the arbitrators, as the case may be, have received notice. So, let this date be X. Now in the amended Section 29A(1), the date of reference is the date of completion of pleadings by the parties which will obviously be subsequent to the date on which arbitrator(s) had received the notice (X). Then this can be denoted as Y. It is also pertinent to note that the time deadline for completion of pleadings for the parties as provided in newly inserted Section 23(4) is 6 months. So effectively Y=6 months.

As per Section 29A(3), if the arbitration is not completed within 12 months, the time period can be extended to further 6 months by the consent of parties. So effectively what was before (X+12+6) is now (X+Y(6)+12+6).

In other words, what was effectively 18 months earlier has now been made as 24 months. This was arguably not required since parties usually do not (rather should not) take 6 months for the completion of pleadings.

 

Section 29A(4) Proviso 2

 

Not Present

Provided further that where an application under sub-section (5) is pending, the mandate of the arbitrator shall continue till the disposal of the said application:

 

In the erstwhile regime, the mandate of an arbitrator stands terminated till the application seeking extension of timeline for completion of arbitration proceedings was decided by the Court.

Generally, the Judicial intervention at this stage was leading to more delays, particularly given that the mandate of the arbitral tribunal may have terminated during the pendency of the application before the Court.

In addition, Section 29(A)(5) stipulates that the extension of time for rendering the award can only be granted on account of sufficient cause shown by the parties and on such terms as may be imposed in this regard.

In this way Section 29(A) proceedings were in itself a mini trial which use to further hamper the arbitration proceedings which were deemed terminated pending adjudication of this application.

Therefore, the insertion of this proviso by removing the automatic stay of arbitration proceedings pending adjudication of application for stay, is a welcome change for arbitration practitioners in India. However, it still remains unanswered that whether the time period wherein the application for the extension of time by the court is pending adjudication can be included for the purpose of computing time period for passing of an award.

 

Section 29A(4) Proviso 3

Not Present

Provided also that the arbitrator shall be given an opportunity of being heard before the fees is reduced.

Section 29A(4) Proviso 1 provides that while extending the period, if the Court finds that the proceedings have been delayed because of the arbitrator(s), then, it may order reduction of fees of arbitrator(s) by not exceeding five per cent for each month of such delay.

Before the insertion of Section 29(A)(4) Proviso 3, subject to Court’s discretion, this reduction was imposed without affording any opportunity to the arbitrator(s) to justify delay, if any, attributable to such arbitrator(s). This was against the basic rules of natural justice which includes audi alteram partem.

 

Section 29(A)(4) Proviso 3 removes this anomaly by affording an opportunity to such arbitrator(s) before such deduction of fee.

 

Section 34(2) – Application for setting aside arbitral award

 

(2) An arbitral award may be set aside by the Court only if—

 

(a) the party making the application furnishes proof that—

(2) An arbitral award may be set aside by the Court only if—

 

(a) the party making the application establishes on the basis of the record of the arbitral tribunal that

The threshold under the erstwhile sub-section (2)(a) of section 34 for the setting aside of arbitral awards by the court was that the applicant has to furnish proof of the circumstances enumerated therein for the Court to set aside the award.

This ‘furnishing of proof’ led to prolongation of setting aside proceedings serving as a roadblock for the enforcement of domestic award.

The amendment in Section 34(2) removes the requirement of furnishing proofs to substantiate the ground(s) for setting aside the award. Instead, by virtue of this amendment, the applicant needs to establish the ground(s) for setting aside of the award based on the record of the arbitral tribunal which may ensure that proceedings under section 34 are conducted expeditiously.

The expression furnishes proof has been recently interpreted by the Supreme Court in Emkay Global Financial Services Ltd. v. Girdhar Sondhi (2018) 9 SCC 49

In that case, after relying on several earlier judgments, the Court clarified the legal position by stating that an application for setting aside an arbitral award will not ordinarily require anything beyond the record that was before the Arbitrator. However, if there are matters not contained in such record, and are relevant to the determination of issues arising under Section 34(2)(a), they may be brought to the notice of the Court by way of affidavits filed by both parties. Cross-examination of persons swearing to the affidavits should not be allowed unless absolutely necessary, as the truth will emerge on a reading of the affidavits filed by both parties.

 

 

Section 37(2) – Appealable orders

 

(2) An appeal shall also lie to a court from an order of the arbitral tribunal

(2) Notwithstanding anything contained in any other law for the time being in force, an appeal shall also lie to a court from an order of the arbitral tribunal

This amendment was brought because the erstwhile Section 37(2) was inconsistent with Section 13 of Commercial Courts Act which provides right of appeals from decrees of the Commercial Courts and Commercial Divisions of the High Court in India.

An appeal under Section 13 of the Commercial Courts Act against a ‘commercial dispute’ of ‘specified value’ both defined under Commercial Courts.

By virtue of Section 13 of the Commercial Courts Act, this would otherwise provide a general right of appeal in decisions made in arbitration matters where the subject matter of the arbitration is a commercial dispute of specified value.

The addition of this non obstante clause will remove this inconsistency between the two statutes and by virtue of this amendment. As a sequitur, the right to appeal against an order of the arbitral tribunal will be governed by Section 37 of the Act and not the wider right of appeal provided under Section 13 of Commercial Courts Act.

 

Section 42A – Confidentiality of information

 

Not Present

“42A. Notwithstanding anything contained in any other law for the time being in force, the arbitrator, the arbitral institution and the parties to the arbitration agreement shall maintain confidentiality of all arbitral proceedings except award where its disclosure is necessary for the purpose of implementation and enforcement of award.

Before the insertion of this Clause, there was no provision under the Act expressly providing for confidentiality of arbitral proceedings.

In the absence of such a provision, parties used to fall back on any confidentiality clause in the arbitration agreement or the arbitral rules of the administering institution.

Therefore, by virtue of insertion of this Clause, the Act has provided an expressed recognition to duty of confidentiality in arbitration proceedings.

 

Section 42B – Protection of action taken in good faith

 

Not present

42B. No suit or other legal proceedings shall lie against the arbitrator for anything which is in good faith done or intended to be done under this Act or the rules or regulations made thereunder

This newly inserted provision provides immunity to the arbitrator against any suit or legal proceedings for his acts or intended acts done in good faith. However, it is not clear what constitutes the ‘good faith’ act.

 

Section 45 – Power of judicial authority to refer parties to arbitration

 

Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed.

Notwithstanding anything contained in Part I or in the Code of Civil Procedure, 1908 (5 of 1908), a judicial authority, when seized of an action in a matter in respect of which the parties have made an agreement referred to in section 44, shall, at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it prima facie

finds that the said agreement is null and void, inoperative or incapable of being performed.

By virtue of this amendment, in international commercial arbitration,  a judicial authority when seized of an action in a matter in respect of which the parties have made an arbitration agreement, will refer the matter for arbitration as against the court proceedings unless it prima facie finds that the arbitration agreement between the parties is null and void, inoperative or incapable of being performed.

This amendment is against the view taken by the Supreme Court in
Shin-Etsu Chemical Case Co. Ltd. v. Aksh Optifibre Ltd. and Anr. (2005) 7 SCC 234 wherein the Court inter alia held that under Section 45, the Court will take prima facie view on the validity of arbitration agreement only if it actually refers the parties to arbitration and not otherwise.

However, the word ‘prima facie’ inserted in Section 45 by 2019 amendment Act read with ‘unless’ has diluted the effect of this verdict of the Supreme Court.

 

Section 50 – Appealable orders

 

(1) An appeal shall lie from the order refusing to-

Notwithstanding anything contained in any other law for the time being in force, an appeal] shall lie from the order refusing to

Like Section 37 as discussed above, a non obstante clause is inserted in this clause to curtail the application of Section 13 of the Commercial Courts Act on the appeal against an order of the Court refusing to refer the parties to arbitration under Section 45 or enforcing a foreign award under Section 45 the scope of which is limited under Section 50 as compared to wider scope of appeal provided under Section 13 of the Commercial Court Act.

 

Section 87 – Effect of arbitral and related court proceedings commenced prior to 23rd October 2015

 

Not present

“87. Unless the parties otherwise agree, the amendments made to this Act by the Arbitration and Conciliation (Amendment) Act, 2015 shall—

 

(a) not apply to––

 

(i) arbitral proceedings commenced before the commencement of the Arbitration and Conciliation (Amendment) Act, 2015;

 

(ii) court proceedings arising out of or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior to or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015;

 

(b) apply only to arbitral proceedings commenced on or after the commencement of the Arbitration and Conciliation (Amendment) Act, 2015 and

to court proceedings arising out of or in relation to such arbitral proceedings.

By virtue of this Section, the 2015 Amendment Act will not apply to Arbitral proceedings commenced before 23 October 2015;

Note:- As far as automatic stay of enforcement of domestic award under Section 36 as amended by 2015 Amendment Act is concerned, the newly inserted Section 87 is against the law settled by the Supreme Court in
BCCI v. Kochi Cricket Private Limited (2018) 6 SCC 287 wherein the Court inter alia held that amendments made to Section 36 (removal of automatic stay) by the 2015 Amendment Act are retrospective in nature.

 

Further, in view of Section 87, the 2015 Amendment Act will not apply to Court proceedings arising out or in relation to such arbitral proceedings irrespective of whether such court proceedings are commenced prior or after 23 October 2015.

 

However, the 2015 Amendment Act will apply to arbitral proceedings commenced on or after 23 October 2015 and to court proceedings arising out of or in relation to such arbitral proceedings.

 

Schedule 8

 

Not present

THE EIGHTH SCHEDULE (See section 43J) Qualifications and Experience of Arbitrator…

This Schedule has been added which deals with qualifications and experience of arbitrator. However, Schedule 8 does not enumerate qualification and experience criteria for foreign arbitrators. Thus, by implication this will be against Section 11(9) of the unamended Act which empowers the parties to appoint arbitrator(s) of a nationality other than the nationalities of the parties where the parties belong to different nationalities.

 

Part IA – Arbitration Council of India

 

Not present

Under the 2019 Amendment Act, the Supreme Court and High Court has been granted the power to designate an ‘arbitral institution’.

With a view to strengthen institutional arbitration in India, the Act establishes an independent body called Arbitration Council of India (‘Council’), for grading of arbitral institutions and accreditation of arbitrators.

India has always been stigmatised to mostly cultivate ad hoc and not institutional arbitration. This amendment will enhance the presence of both domestic as well as international arbitral institutions in India. A bird’s eye view of the structure of this Council is provided below for ease of reference. The figure below encapsulates the structure of the Council in brief.

2 (2)

Special Inputs: From Sidhant Kapoor

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